NEWSMAKERS
- Will the economists hack it?
- How many will follow Dino?
- Happy Birthday, Bank of Ghana!
- HKMA: Y K Choi to succeed William Ryback
- Ben Bernanke bares his financials
- Charlie Evans succeeds Mike Moskow at Chicago
- Choices for post-Dodge era
- Isaac Bisimana arrested
- Momodou Saho acting governor in Gambia
- Daudi Ballali rebuts his critics
- Roman Gotsiridze under pressure
- Paris bags the IMF job - again
- Alex Brummer censures UK’s MPC
- MPC meetings “like going to the dentist”
- Padoa-Schioppa eyes Italy’s gold stock
- Tables turned on Vietnam’s Thuy
- Kudlow puts Bob McTeer on the spot
- Wayne Angell on lender of last resort
- Famous last words
It is being said that the current crisis is the first real test of Fed Chairman Ben Bernanke’s skill and nerves in a banking crisis. But more widely, this is the first big financial crisis to face central banks since so many of them were taken over by the economists. Economists are certainly the most well-qualified people to decide on anti-inflation policy, but when it comes to financial stability issue, it is not so clear that they have a comparative advantage. The older generation relied on experience, intuition, central banking tradition and personal acquaintance with the key players in their financial centre to guide them. The younger generation relies on economic modeling, and….
Newsmakers expects the economists to do pretty well, though they will face a test in one key area. Will they have the authority and market knowledge to knock the heads of the big market players together? In the past this has nearly always been a crucial step in resolving such liquidity crises….
News that Dino Kos, the lively executive vice president of the market group at the Federal Reserve Bank of New York, has left the central bank for Morgan Stanley is merely the most high-profile of recent departures from the central banks. More and more central bank reserve managers are moving to greener pastures in the private sector. However, the fact that his successor Bill Dudley joined the Fed from Goldman Sachs shows the traffic is still too-way. (Don’t mention the word “incestuous” please).
Kos was very open about it, as is his style: central banks and sovereign wealth funds are thirsting for “tailored investment solutions”. This is creating “significant opportunities”, he said. Certainly Dino can afford a good tailor now.
He has bags of experience and a dynamic, personable manner to boot. At the markets group he was responsible for overseeing the Fed’s trading activity and for managing $40 billion of euro and yen reserves. Before 2001, he headed the foreign exchange department.
Cleverly, Kos already stepped down as head of the markets group at the Fed in January this year, in readiness for leaving the bank later in the year. He has already started at Morgan Stanley last month and has moved to Hong Kong.
Morgan Stanley wants to grow its market share in central bank and sovereign wealth fund management, areas where it is already a market leader. Together with its affiliates it has about $560 billion in assets under management or supervision. Morgan Stanley management expect Kos to increase that total significantly.
Happy Birthday, Bank of Ghana!
Paul Acquah, the governor of the Bank of Ghana, talks about central bank developments and growth in the financial sector in a speech to mark the central bank’s 50th birthday.
To read the speech, click here
- and you too, Bundesbank!
Germany’s central bank celebrated its half century with a commemorative €10 coin and a quote from the great Otmar Emminger, a former Buba president:
“Preisstabilität ist nicht alles, aber ohne Preisstabilität ist alles nichts“
Sadly, it does not come out quite as well in the official English version:
“Price stability is not everything, but without price stability everything is nothing.”
HKMA: Y K Choi to succeed William Ryback
Following the retirement of William Ryback, the deputy chief executive with responsibility for banking stability, on 31 August 2007, Y.K. Choi is to be deputy chief executive responsible for banking stability. YK is currently deputy chief executive with responsibility for monetary management, financial infrastructure, reserves management, and strategy and risk.
Eddie Yue, who is currently the executive director with responsibility for monetary management and financial infrastructure, will become deputy chief executive and take over Mr. Choi's existing portfolio.
Edmond Lau will take over from Yue as executive director with responsibility for monetary management and financial infrastructure, retaining for the time being his responsibilities for strategy and risk.
Ben Bernanke bares his financials
Like a good central bank reserve manager, Ben Bernanke, is himself a cautious investor, with a portfolio mostly of US Treasury securities, mutual funds and annuities. His latest disclosure – a disclosure required by law - shows he has total assets valued at between $1.12m and $2.41m. His income from investments, including savings and checking accounts, amounts to between $136,500 and $318,000 a year. That was before the latest market meltdown.
Charlie Evans succeeds Mike Moskow at Chicago
Charles L. Evans, currently senior vice president and director of research at the Federal Reserve Bank of Chicago, will succeed Michael Moskow as president when the latter retires at end-month after 13 years in the job. Evans joined the Chicago Fed in 1991 and has been director of research since 2003. In that capacity he coordinates all monetary policy support for the president and the board of directors, with responsibility for research into the conduct of monetary policy and the structure of the macro economy.
When David Dodge retires as governor of the Bank of Canada in January 2008, the two favourites to succeed him are the senior deputy governor, Paul Jenkins, and ex-central banker Mark Carney, now a senior associate deputy minister of finance. But outsiders cannot be counted out.
The senior deputy governor has frequently got the job in the past and Jenkins, who joined the central bank in 1972 and was appointed to his present post in April 2003, is seen as a safe pair of hands. However, Dodge was himself an outsider when he became governor in 2001, when many thought that Knight should get the top slot after kicking his heels for years as senior deputy governor. You never can tell.
Isaac Bisimana arrested
Isaac Bizimana, the governor of the Bank of Burundi, was arrested Saturday 4 August on suspicion of embezzlement. The alleged embezzlement involves payments made to Interpetrol, an oil company, between 1996 and 2002. The government is alleged to have agreed to pay the company for exchange rate losses incurred over the six-year period, when Burundi was under blockade because of a military coup.
A report published last month by the state auditor claimed that Interpetrol received more than $21 million, which was substantially more than its exchange rate losses.
Bizimana became governor in February this year. He was previously an adviser on economic and social affairs to the country’s president, Pierre Nkurunziza.
“[Currency] intervention is a supplementary monetary policy tool
and is considerably less potent than the central OCR [Official Cash Rate]
instrument which has an important influence on the trend of the exchange
rate.”
Momodou Saho acting governor in Gambia
Famara Jatta has quit his position as governor to take up the decidedly less prestigious position of representative of the African Development Bank (ADB) in Sudan. He left at a time when the country’s economy is suffering severe hardship, with salaries at a standstill for the past two years while the prices of consumer goods continue to rise. Many companies have left The Gambia because of its bad human rights record and rough treatment of investors.
Jatta was recently praised by the International Monetary Fund (IMF) for his efforts towards recovery. Before becoming governor of the central bank he served with the World Bank and as The Gambia’s minister of finance. According to local media reports, Jatta was virtually pushed out by the country’s president ,Yahya Jammeh.
The central bank told CentralBankNews.com that first deputy governor, Momodou Saho, took over as acting governor from August 1.
Daudi Ballali rebuts his critics
The governor of the Bank of Tanzania, Daudi Ballali, has dismissed allegations against him as “malicious lies and fabrications” and said he had no intention of resigning. The governor has been under the spotlight over a number of scandals including the alleged disappearance of up to $200m.
Local media reports say the governor was quizzed by journalists over expenditures in relation to the central bank’s external commercial debt account, the controversial Twin Towers project for the construction of new headquarters for the central bank on which expenditure has already reached $340m, and what are seen as excessive legal fees.
Ballali said that successive central bank governors had already faced questions over the ballooning costs of the Twin Towers, a project which was already under way when he took over as governor, and denied that his salary was paid in American dollars.
He also said that the Tanzanian government was going to set up an inquiry into the external debt account scandal where millions of dollars are said to have vanished in suspicious circumstances.
Roman Gotsiridze under pressure
The governor of the National Bank of Georgia, Roman Gotsiridze, may resign after parliament passed a resolution calling for changes at the central bank. The resolution, passed 124 votes to 1, called on the central bank to focus more on negative consequences of further currency appreciation, to reinforce supervision over commercial banks, and to reduce the central bank’s administrative expenses.
Government officials joined in, reports “Civil”, with Kakha Bendukidze, the state minister in charge of economic reforms, saying the central bank should have been more vigorous in its efforts to reduce risks posed by the capital inflow.
Gotsiridze became governor in 2005 and squared off with the government barely a few months later over question of how much capital the central bank should hold. Should he resign, Irakli Kovzanadze, chairman of the parliamentary committee for budgetary and financial issues, may replace him.
Paris bags the IMF job - again
There’s no beating the French when it comes to the wiles of international financial diplomacy. First, they come up with irresistible candidates for every top international job, through providing the right kind of education, elite training in the skills needed, and grooming candidates throughout their careers. Secondly they then mobilise the formidable French diplomatic corps to marshal support. Thirdly, they wheel up the president of France to seal the deal in conversation with other heads of government. As a result, Frenchmen have supplied a large proportion of top international civil servants for generations and now lord it over four leading international institutions – the ECB, EBRD, WTO and IMF.
In the latest example of their dazzling footwork, once the French had identified Dominique Strauss-Kahn, a former French finance minister, as their candidate to succeed Rodrigo de Rato as Managing Director of the fund, his appointment had an air of inevitability, despite the equally good claims of other candidates. As consolation prize for failing to become president of France, head of the IMF is after all not bad…
The French took a mischievous delight in publicly humiliating the Brits – yet again – releasing news of their coup just when poor Alistair Darling Britain’s new chancellor of the exchequer was briefing journalists on London’s view. He was banging on about the job should be open to candidates from other parts of the world outside Europe, blah, blah…., when he was handed a bit of paper which read:
“Ecofin (EU finance ministers) agrees to support D. Strauss-Kahn for IMF Director,” Peer Steinbrueck, German finance minister, said he was “the best candidate Europe had to offer.”
It was all over.
Alex Brummer censures UK’s MPC
Alex Brummer, a veteran British economic commentator, last month strongly criticised the Bank of England’s monetary policy makers, their appointment process and their performance.
Writing in the New Statesman, a weekly magazine, he said that the big difference between the Fed, the European Central Bank and the British MPC was that the first two institutions “are dominated by experienced central bankers.”
“All those voting on the ECB are central bankers in their own country who are steeped in the history of inflation and monetary doctrine, and they have been remarkably sure-footed in setting a one-size-fits-all interest rate for euroland,” he adds.
The Bank of England’s approach to making monetary policy and its performance since 1997 has been hailed as a success, said Brummer. But recent rate rises and the promise of more to come have cast a pall over this, and Britain’s borrowers will soon start to feel the pinch.
Making the central bank independent and taking politicians out of the rate-setting process was hailed as an “act of genius” but recent performance calls for a reassessment. “Some of the nation's most respected voices, such as DeAnne Julius and Sushil Wadhwani, served only one three-year term because they developed worrying streaks of independence.”
Having the central bank target a measure of inflation that excludes house prices is, Brummer said, “bonkers”.
The voting system of one person one vote produces “bizarre outcomes” he added, arguing that Mervyn King’s recent loss of a vote had undermined his authority.
MPC meetings “like going to the dentist”
Tito Mboweni, governor of the South African Reserve Bank, is getting impatient with the pedants on his MPC. Taking decisions by consensus among the seven member committee is bad enough, but writing up the announcement is even more difficult. One MPC member has studied Greek, another Latin, Mboweni told a business dinner recently. This means they are very particular about how things are phrased and just when you think everything has been settled, someone puts a hand up and says they don't like the last paragraph! This, the governor ruefully concluded, means that drafting an MPC statement is a bit like going to a dentist who extracts your teeth without anaesthetic.
Padoa-Schioppa eyes Italy’s gold stock
Now that he’s donned a politician’s hat, former central banker Tommaso Padoa-Schioppa suddenly seems suspiciously keen on selling Italy’s gold. It is indeed ironic that somebody who, as former board member of the ECB and the Bank of Italy, did so much to enshrine central bank independence in the ECB statutes, now seems bent on undermining it. Let’s hope he is just playing politics. Italy's parliament has passed a motion requiring the government to look into the possibility of selling the Bank of Italy’s gold to reduce the national debt. Prime Minister Romano Prodi loves the idea and even Padoa-Schioppa claims that the use of gold sales to cut the debt has already been decided in other countries. There was, he said, “no problem” with the proposal if the proceeds helped to cut debt and reduce the burden for future generations.
"Within certain limits, and provided that it's done in the right way, the government and the parliament are fully entitled to discuss these issues," Padoa-Schioppa is reported as saying.
Actually, such proposals have been hugely controversial whenever mooted and have usually done no good at all to the careers of the politicians involved: Tommaso – you have been warned!
Bank
of Thailand denies approving funds transfer
Thaksin Shinawatra, ex prime minister of Thailand , may have purchased
Manchester City football club in a deal said to be worth £81 million
and he may have hired former England manager Sven-Goran Eriksson to manage
it, but according to the Bank of Thailand he has not yet moved funds out
of Thailand for his purchase. This apparently contradicted statements
made by Thaksin's legal advisor, that the money had been transferred from
Thailand with permission of the central bank.
Suchart Sakkankosone, BoT's exchange control and credit department director,
told the Thai News Service that the central bank database showed it had
allowed the Shinawatra family to take money out of the country to buy
property twice in the past three years. First, the family sought a modest
sum of money to acquire an apartment in the United Kingdom for Mr. Thaksin's
eldest daughter Pinthongta, who is studying there. Second, the family
asked the central bank for a shift of around Bt400 million to purchase
a house in the UK .
But Thaksin’s chief defence lawyer disputed allegations that the
purchase was financed by hidden wealth."The National Counter Curruption
Commission (NCCC) is welcomed to check Thaksin's declared assets and I
only demand a straightforward audit without a pretext to fault him,"
Noppadon Patama said.Noppadon was reacting to reports that Thaksin's asset
statements did not seem to correspond with his London wealth designated
for the Manchester City deal. He argued that Thaksin financed his deal
with honest earnings and that he was not obliged to declare funds held
by his adult children, relatives and close associates.
Kudlow puts Bob McTeer on the spot
Bob McTeer, former president of the Dallas fed, found himself struggling in a TV chat with US economic journalist Larry Kudlow, an economic journalist, and controversial commentator Donald Luskin on CNBC on August 7 – the day before the latest financial market meltdown started.
They started by discussing whether the 1% era of Fed funds rates under Alan Greenspan went on too long:
McTEER: One percent probably was too low, and it probably stayed too long. But the Fed started raising the Fed funds rate in June of '04, and they went all the way from 1% to 5 1/4%. At the same time the market is what kept long-term rates from going up. They actually declined a little bit during that period. The Fed was trying to tighten. It's the markets that kept long rates probably too low.
Then Kudlow started needling him:
KUDLOW: You were a voting member during of the FOMC during that period?
McTEER: In June of '04, I was still there. I left in November.
KUDLOW: And you were, therefore, a voting member when they went to 1% on the Fed funds rate, which Mr Luskin essentially blames as the font of all evil.
McTEER: Right.
KUDLOW: Do you feel guilty? How do you respond to Luskin and all these critics that are now blaming the Fed? It's sort of a retrospective, retroactive Fed blame game.
McTEER: Well, I did find it hard to worry about the prospects of actual deflation. I thought that wasn't terribly serious, and if it did occur, we could get out of it. However, Chairman Greenspan was--not concerned that it was likely but concerned that if it did happen, it would be very serious, basing that, I, guess on the Japanese experience.
KUDLOW: Well, do you feel guilty about this decision?
McTEER: No, I don't--I...
KUDLOW: Do you have trouble sleeping at night?
McTEER: No, no, no. I don't sleep well at night, but that's not the reason.
KUDLOW: All right. I don't to go any further for this particular segment.
Wayne Angell on lender of last resort
Later, Kudlow teases Bob and Wayne Angell, another former Fed luminary, on the lender of last resort issue:
KUDLOW: All right. Bob McTeer, final thought to you. I'm still waiting for some Federal Reserve member, either a big shot or a middle shot, to say somewhere--maybe they're going to whisper it in the middle of Washington, DC, or in a restaurant here in New York--but they're going to say to somebody, so it's picked up by the press, that the Fed will--remains as the lender of last resort in the event of a financial emergency, and, yes, the discount window is still open, just in case. I'm waiting for that shoe to fall, Bob McTeer. Will it fall, in your judgment?
McTEER: Well, I think you just dropped it. People are watching, and they know that's true. The problem is, under conditions like this, banks are very reluctant to go to the Fed's discount window because they'll be afraid the markets will take it as a sign of trouble. So...
KUDLOW: What do you mean--that would be--but, you mean--but, does word get out? I'm not aware of that. If you--if Citibank or somebody, JPMorgan, went in, you guys won't release the name of the borrower, will you? You guys, your former guys, you won't release the name of the borrower, will you?
McTEER: I believe that's public information. Perhaps not immediately, but it's easily discerned.
KUDLOW: Oh, I didn't know that. Wayne Angell, is that true? You're a long time governor of the Federal Reserve Board. Do you release that stuff? Did you when you were there?
ANGELL: Oh, yes.
Famous last words
Asked about the financial markets at the press conference on the inflation report, Mervyn King said he did not know what would happen in the future. However,
“So far, what we have seen is not a threat to the financial system, either in the United States, or Germany where they had a failure, let alone in the United Kingdom. It’s not an international financial crisis. It’s developments in spreads which reflect a more realistic pricing of risk, and that’s to be welcomed.”
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